Three African Futures
John Page
The Brookings Institution
University of Nevada at Las Vegas
7 April 2014
The Next Frontier?
Growth of GDP Per Capita
• Africa has become the new
“frontier market”
–
–
–
“Africa is the world’s fastest-growing
continent just now.” (The Economist, 2013)
More than 5% growth for 15 years
A growing middle class
• But predictions of Africa’s
imminent economic success have
proved wrong on numerous
occasions
–
–
–
–
Africa’s Adjustment and Growth in the
199Os (Word Bank and UNDP, 1989)
Adjustment in Africa: Reforms, Results, and
the Road Ahead. (World Bank, 1994)
Can Africa Claim the 21st Century? (Alan
Gelb, 2000)
Africa at a Turning Point? (John Page,
2008)
Some Worrying Signs
• But not at the same rate
as in other parts of the
developing world
80
60
40
20
– From 58 percent of people
in 2000
– To 48.5 percent in 2010
Extreme poverty in the developing world
0
Headcount
• Growth has been driven
by “fewer mistakes” and a
commodities boom
• People living on less than
$1.25 per day have
declined
1980
1990
2000
YEAR
East Asia
Latin America
South Asia
Central Europe
Middle East & NA
SSA
2010
And Africa Remains Very Poor
Real GDP Per Capita in US$ (2000)
Three African Futures
African Spring
Nigeria Big Time
Leopards and Laggards
African Spring
Too Few Jobs for Too Many Workers
– Rapid labor force growth
(10-12 million new
entrants)
– A growing youth bulge
• Africa’s fastest growing
economies are creating
the fewest jobs
Senegal
0.8
Cameroun
South Africa
0.7
Employment Elasticity of Growth
• Africa faces a
demographic dividend
or threat
0.9
0.6
Congo
Egypt
Niger
Congo DR
Mali
0.5
Kenya
Nigeria
Malawi Uganda
Zambia Ghana
Rwanda
0.4
0.3
Ethiopia
Tanzania
0.2
0.1
0
0
2
4
6
8
Average GDP Growth (%)
10
12
14
African Spring
Too Few Jobs for Too Many Workers
100
S. Leone
Benin
Ethiopia
B. Faso
Tanzania Mali
Madagascar
Niger
Cameroun
Liberia Uganda
90
80
70
Ghana
Zambia
Lesotho
Kenya
Zimbabwe
60
Informality (%)
• Countries with low
unemployment have large
and growing informal
sectors (Ethiopia, Ghana,
Tanzania)
• In North Africa and
Southern Africa
informality is lower and
unemployment is high
• Both situations are cause
for concern
Morocco
50
Algeria Botswana
40
Egypt
30
Tunisia
Namibia
20
Mauritius
10
S. Africa
0
0
5
10
15
20
Unemployment rate (%)
25
30
African Spring
“Working Hard, Working Poor”
• Three out of four jobs in
sub-Saharan Africa are
“vulnerable” (ILO)
• In 2011 81.5 percent of
workers were classified as
working poor, compared to
the world average of 39.1
percent
• Less than 20 percent of
Africa’s young workers find
places in wage
employment.
• The parallels with the
Middle East are disturbing
African Spring
Avoiding an African Spring
• The solution to the
employment problem
cannot be found in
employment policies
alone
• Domestic private
investment has remained
the same since 1990’s
• It is well below the levels
needed for rapid growth
of good jobs
• Boosting private
investment is essential
Private Investment as a Share of GDP
1990-94
1995-99
2000-04
2005-09
Africa LIC
10.2
11.2
11.1
11.8
Africa MIC
14.6
14.5
13.8
15.8
East Asia
24.9
19.9
12.4
16.8
Low Income
Countries
10.0
11.5
12.9
15.4
All
Developing
Countries
13.7
14.5
14.0
16.6
African Spring
Avoiding an African Spring
• Africa is still a high cost place to do business
– “Indirect costs” lower competitiveness and discourage investment
• Reform regulations and institutions
– Identify which regulations and institutions constrain investment
– Engaging the private sector and avoiding capture
• More and better infrastructure
– Firm level studies in Africa highlight infrastructure as a significant
constraint to more investment
– Africa lags at least 20 percentage points behind the average for low
income countries on almost all major infrastructure measures
• Build relevant skills
– Increase the emphasis on post-primary education
– Improve quality at all levels
– Teach the skills needed for the global marketplace
Nigeria Big Time
Natural Resources: A Promise or a Threat?
• Africa has about 30 percent of the world's mineral reserves.
• And much of the continent is still unexplored
• New discoveries are happening almost daily (Ghana, Kenya,
Mozambique, Tanzania, Uganda)
• For a growing number of countries natural resources offer a
huge opportunity…but one that is accompanied by
considerable risks.
Oil revenues per person in Nigeria increased from
US$33 in 1965 to US$325 in 2000, but…
…income per person has remained the same since
1960!
Nigeria Big Time
A Poor Track Record
• Mineral dependent economies in Africa have:
–
–
–
–
–
Higher poverty rates
Greatly income inequality
Less spending on health care
More child malnutrition
Lower literacy and school enrollments
Than non-mineral economies at the same income
level.
• Not surprisingly this has become known as the
“resource curse”
Nigeria Big Time
Some Popular Explanations
• Dutch disease:
– resource rich economies produce too few internationally
competitive goods
• Volatility:
– resource rich countries tend to spend when times are good and
borrow (and spend) when times are bad
• Bad institutions:
– resource rich countries with bad institutions typically are poor
and remain poor
• Corruption:
– a natural resource bonanza brings out more rent seekers
• Conflict:
– higher resource income makes warfare more attractive
Nigeria Big Time
Geology Is Not Destiny
Income Growth in Three Resource Rich Economies
Income growth %
• Because they are the
owners of the resource
governments must play an
active and constructive role
in managing natural
resources for development
• Avoiding the “resource
curse” is about making good
public policy choices
• In Africa there is a high
potential pay-off to
investing resource revenues
in future growth and jobs
10
8
6
4
2
0
-2
-4
Nigeria
Malaysia
Indonesia
Bottom Middle 40% Top 20%
40%
Nigeria Big Time
Avoiding the Resource Curse
• The sequence of choices for governments related to
resource extraction can be thought of as a decision
chain.
–
–
–
–
–
Finding the resource
Getting a good deal
Collecting revenues
Save or spend?
Where to spend?
• Bad decisions anywhere along the chain can derail
development
• Good decision making requires minimum standards of
accountability and transparency
Nigeria Big Time
Avoiding the Resource Curse
• Investing in agriculture
– About two thirds of Africans still depend on agriculture
– Agricultural yields have stagnated or declined for 40 years.
• Improving competitiveness
– Trade-related infrastructure
– Education access and quality
• Leveraging the resource
– Linking domestic firms to foreign investors
– Using resource-focused infrastructure for regional
development
Leopards and Laggards
Breaking from the Pack
• Unlike Asia, Africa has had few regional
“champions” to serve as models of success
• The next 15 years are likely to reveal some
“leopards”: countries that grow much faster
than the regional average
• The basis for that success will be rapid
structural change
• Growth will falter in economies that fail to
transform: these will become the “laggards”
Leopards and Laggards
Why Structural Change?
• In countries at low levels of
income productivity
differences between sectors
are large
– The movement of resources
from low productivity to high
productivity employment
drives growth
– As incomes rise, productivity
differences among sectors (and
enterprises) tend to converge
• Africa has the greatest
differences in productivity
among sectors, and therefore
the greatest potential for
structural change
Leopards and Laggards
Going Up the Down Escalator
• But in Africa structural
change is going in the
wrong direction
• An increasing share of the
labor force is in lower
productivity sectors
• “Growth reducing”
structural change is
slowing overall growth
and employment creation
Leopards and Laggards
Africa Needs Industry
• Industry – including
agro industry and
tradable services -- is a
high productivity sector
• Industry is also
employment intensive
• But Africa has
“deindustrialized” over
the last 40 years
Mfg Exports
Growth PC
Mfg.
Value
Share of Mfg in
PC 2005
Exports 00-
Added PC 2008
GDP 2008
(US$)
05
(US$)
(%)
(%)
Africa
39.0
1.65
138.6
9.4
487.2
10.05
412.9
21.7
Average
Developing
Countries
Leopards and Laggards
Can Africa Break In?
• New entrants to global markets are competing
with Asia
• A window of opportunity?
– Rising costs in Asia
– Growing domestic demand in Asia
– Industry no longer need smokestacks
• Leopards will have to master the drivers of
industrial location
Leopards and Laggards
What Determines Industrial Location?
• Trade in tasks
– Technical change has brought about “vertical disintegration” of
production
– A chance for a foothold, but many low wage economies have
not attracted task-based production
• Agglomerations
– Manufacturing and service industries tend to cluster
– Starting a new industrial agglomeration is a form of collective
action problem
• Firm capabilities
– Capabilities are the tacit knowledge and working practices
needed for production and product development
– High capability firms are those that can compete globally on
price and quality
Leopards and Laggards
A Strategy for the Leopards
• Creating an “Export Push”
– A “whole of government” initiative to promote non-traditional exports
– Linking trade policy, infrastructure, skills and geography to
macroeconomic management
• Spatial industrial policy
– Special Economic Zones (SEZs): world class infrastructure, skills and
institutions
– Growth corridors: link natural resources and coordinated investments
• Attracting and building capabilities
– Strengthening policies and institutions for attracting FDI
– Removing obstacles to the transfer of capabilities in value chain
relationships
A New Role for Aid
Under Five Mortality
• Africa is the world’s most
aid dependent region
– Between 10 and 30
percent of national
budgets are financed by
ODA
• Since the mid-1990s aid
donors have focused on
human development –
with considerable success
• But the failure to create
good jobs is a major risk
to further progress
200
180
160
140
120
SubSaharan
Africa
100
Souther
n Asia
80
60
SouthEastern
Asia
40
LAC
20
0
1990
2010
A New Role for Aid
• Supporting job creation
– Investing in agriculture
– Building infrastructure and skills
– Strengthening firm capabilities
• Linking aid and trade
– Improving coherence of trade and aid policies
– Making “aid for trade” a reality
– Supporting regional integration
• Avoiding the resource curse
– Geological information
– Evening up the sides
– New approaches to institution building
Which Future?
• By 2030 Africa will have become more diverse in
terms of economic performance
• Some economies will industrialize and become
leopards
• Some resource rich economies will avoid the
resource curse… and some will not
• Those economies that fail to transform – either
through industry or natural resources – will
become the laggards
• And for the laggards the prospects of an “African
Spring” will become very real
So, Which Future?
All of the Above!
Thank You